Q2 2012 Houston, Texas Office Property Sales Analysis

Metro Volume and Pricing

The $1.54 billion that changed hands in 2011 in 18 transactions that met Reis’ criteria were followed by a marked slowdown—only two sales, one per quarter, fetching a combined total of $111.5 million through the first half of 2012.* At $114 psf, the average selling price was less than half of the $239 psf mean recorded for 2011. In the latest quarter’s solitary deal, CapLease Inc. paid Stream Realty Partners-Houston LP $40.5 million ($231 psf) for the 175,000-square-foot, fully-occupied Reserve at Sierra Pines Class A multi-tenant property in The Woodlands. The sale closed in June at an 8.1% cap rate.

Deals closed since the quarter ended include the purchase by Frontier Equity and Amstar Advisors LLC of the 285,682-square-foot, 72%-leased Kirkwood Tower III at 11757 Katy Freeway in the Energy Corridor, TREC reported in July. The price was not disclosed. The building had been valued at $20.7 million. In addition, Granite Properties has acquired the 12-story, 236,932-square-foot, 94%-leased 3355 W. Alabama office building near the River Oaks and West University Place neighborhoods, TREC reported in August. KBS Realty Advisors was the seller.

Landmark deals. The 1.4-million-square-foot, Class A, 30-year-old Williams Tower at 2800 Post Oak Boulevard has been placed up for sale by owner Hines Properties LP, TREC reported in July. The building was more than 95% leased at report date. Hines acquired the “trophy” property from Transco Tower Ltd. in 2008 for $272 million. In what TREC described in a separate July report as “a landmark deal,” Enterprise Products Company has agreed to acquire the 1.8-million-square-foot, two-building Shell Plaza at 910 Louisiana Street and 777 Walker Street.

Top Submarkets

Reflecting the recent sale of Hess Tower and other properties, the Houston CBD led all other metro area submarkets in property volume sold over the past four quarters at more than 1.2 million square feet. It led as well in dollar volume at $482 million. Westheimer-Westchase followed with 855,977 square feet changing hands for $144 million. Close in third place was the Northwest, in which 806,004 square feet were exchanged for $71 million. Totals in other submarkets were small in comparison. The CBD claimed the highest average price at $389 psf. West/Katy Freeway, with 327,310 square feet sold, followed at $258 psf.

Cap Rate Comparisons and Forecasts

The mean cap rate for 2011’s 18 transactions was 7.8%. The average for the two first half 2012 sales was 10.6%. These varying numbers are smoothed-out somewhat by the more stable 12-month rolling cap rate, which has risen moderately through recent quarters. The 12-month rolling rate as of the second quarter was 9.3%, up from 8.9% and 7.8% one and four quarters prior. Significant change is not expected for the year ahead. Latest-quarter 12-month rolling cap rates for the Southwest and U.S. were 8.3% and 7.5%, up from 7.8% and 7.4% a quarter earlier.